Final Report. 3. Vision Statement for International Standards of Actuarial Practice and for Due Process (Appendix C) (Approved 10 September 2012)

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1 Final Report To: The Actuarial Standards Committee From: The Task Force on Measures of Success (Al Beer, Peter Braumüller, Marius dutoit, Luc Farmer) Date: 30 May 2017 Introduction This report has been prepared by the Task Force on Measures of Success (TF) in response to a charge by the ASC in October 2016 at the Cape Town meeting: (Excerpt from the Minutes of the Actuarial Standards Committee Meeting) 18. Measures of success It was agreed to first define what success is and then come up with suitable measures of success for the ASC. Action: Al, Luc Farmer, Marius Du Toit and Peter Braumüller will work on a proposal for defining success and report to the ASC by . Prior to the IAA meeting in Budapest, the T F held four teleconferences and frequent exchanges of s to address this issue. As a result of our deliberations, it was decided that a useful interim work product of the TF would be a report that could be used to stimulate discussion at the ASC meeting in Budapest. This final report incorporates both the interim report and the results of the discussion at that meeting. Background The TF believed that it would be helpful for the ASC to review the various objectives, goals, and visions that have been delegated to our committee. To this end, the TF researched IAA literature and focused on the following directives: 1. IAA Strategic Plan (Appendix A) (Adopted 4 November 2008; Revised 26 May 2013) 2. The Actuarial Standards Committee Terms of Reference (Appendix B) (Created 9 November 2010; Last revised on 3 June 2014) 3. Vision Statement for International Standards of Actuarial Practice and for Due Process (Appendix C) (Approved 10 September 2012) 4. Statement of Objectives for International Standards of Actuarial Practice (ISAPs) (Appendix D) (Approved by Council on May 26, 2012) In addition, the TF reviewed the current Measures of Success that the ASC now compiles (attached as Appendix E). 1

2 Summary Since the Interim Actuarial Standards Subcommittee was established in 2010, there have been many nuanced interpretations of the real mission of the IAA and its Standard s initiative. The TF believes that the ASC should regularly review these directives in detail to continually challenge what should be categorized as true success. The TF analyzed each of the various directives individually and made comments/suggestions regarding their applicability and ways in which their accomplishment can be measured. The initial intention of these observations was not to reach consensus on all issues, but to stimulate a vibrant discussion. We believe this goal was achieved in Budapest. Recommendations Taking all this input into account, the TF has developed the following recommendations for the measures of success: The ASC should (directly or indirectly): Continually track the number of MAs that are governed by standard setting bodies or set standards themselves; Track the number of MAs that previously did not have a system of standards before any ISAPs were developed but now have their actuaries practicing under standards that were adopted/adapted from ISAPs; Track the number of MAs that previously had a system of standards before any ISAPs were developed and now have their actuaries practicing under standards that were adopted/adapted from ISAPs; Continue to maintain an annual record of compliance with the specific responsibilities described in the ASC Terms of Reference; Track the number of and content of comments received from the publishing of Exposure Drafts of ISAPs; and Monitor and broadly publish the results of Council votes on ISAPs to demonstrate the level of approval. Participate in the development of a survey document to be distributed to all MAs and standard-setting bodies seeking information from answers to the following questions: Global Impact Do you believe that the development of ISAPs by the IAA has furthered the convergence of actuarial standards around the world? Has the development of ISAPs by the IAA increased your confidence in the quality of actuarial services around the world? 2

3 Current ISAPs Have you adopted any ISAPs in your jurisdiction? If not, what are the reasons for that? o Local standard addressing the content of ISAPs are already in place; o The ISAPs have not been relevant for our jurisdiction; o We disagree with the guidance in ISAPs; or o Other (please explain) Have you made any amendments to your standards as a result of ISAPs being issued by the IAA? Clarity Have you faced any problems in adopting ISAPs because of lack of clarity regarding the scope and the intended application? Have you faced any difficulties in interpreting ISAPs which made it difficult or impossible to adopt it? If yes, please specify. Communication to MA members What is your process of communicating with your members regarding ISAPs issued by the IAA? Is there a standard procedure in place to raise awareness of ISAPs? Are ISAPs on the agenda of MAs meetings? Due Process Do you believe that the speed with which ISAPs have been developed and adopted was appropriate? Do you consider the transparency of the process for developing ISAPs adequate? Do you think that the ISAP s are appropriately and unambiguously written? Do you think that the ISAP s cover the necessary areas of actuarial work? Future ISAPs Do you believe that there are any areas of work that ISAPs are needed that had not yet been developed? How can the ASC be more valuable to your organization? 3

4 Appendix A Excerpt from the IAA Strategic Plan (Adopted 4 November 2008; Revised 26 May 2013) Strategic Objective 3 Establish, maintain and promote common standards of actuarial education and common principles of professional conduct. Promote the development and issuance of actuarial standards in the jurisdictions of all Full Member Associations, and the global convergence of actuarial standards. Priorities/Action Plans 1. Maintain and promote basic education standards to ensure they remain up to date. 2. Maintain and promote a recommended set of continuing professional development (CPD) guidelines. 3. Maintain and promote a common understanding of the principles of professionalism, including code of conduct and disciplinary procedures. 4. Develop model standards of practice. 5. Periodically monitor activities of Full Member Associations (FMAs) with respect to these action plans. Conclusion: The IAA Strategy for ISAPs is intended to promote: a) the development and issuance of actuarial standards in the jurisdictions of all Full Member Associations, and b) the global convergence of actuarial standards. Comment: a) Promoting the development and issuance of standards does not necessarily involve creating standards in those jurisdictions that already have strong standard-setting bodies. To the contrary, the greatest accomplishment for the IAA might be to develop standards that could be adopted in those regions where standard-setting bodies do not currently exist or lack significant resources. Possible measure of success: Number of FMAs which previously did not have a system of standards but now have their actuaries practicing under standards that were adopted/adapted from ISAPs. In addition, of course, it would be very helpful if the IAA can have a positive influence on the development of standards in regions with strong standard-setting bodies (e.g. Australia, Canada, U.S., U.K.). However, it would appear that the marginal benefit to those regions currently without standards would likely greatly exceed the benefit the IAA could bring to the larger FMAs. 4

5 b) The concept of the global convergence of actuarial standards has been discussed for years and there remain many different views on what this actually means. 5

6 Appendix B Excerpt from The Actuarial Standards Committee Terms of Reference (Created 9 November 2010; Last revised on 3 June 2014) 1. Membership The membership of the Actuarial Standards Committee (ASC) is appointed by the Council in accordance with the criteria established through the Internal Regulations and Nominations Committee Protocol. 2. Purpose In support of Strategic Objective 3, the purpose of the ASC is to develop and maintain all International Standards of Actuarial Practice ( ISAP s), in accordance with the Vision Statement for International Standards of Actuarial Practice and Due Process and the Statement of Objectives for International Standards of Actuarial Practice, both adopted by Council. 3. Role The roles of the ASC encompass the following: To maintain a framework dealing with the scope and architecture of ISAPs, taking into consideration standard-setting practices of IAA Member Associations and other relevant standard setting bodies To prepare, in accordance with the Due Process, Statements of Intent (SOIs) to develop ISAPs for specific purposes and make them available for comments to Member Associations, relevant IAA bodies and external stakeholders as appropriate To develop, in accordance with the Due Process and final SOIs adopted by Council, exposure and final drafts of ISAPs and make them available for comments to Member Associations, relevant IAA bodies and external stakeholders as appropriate To keep the Professionalism Committee informed at each stage of the development of an ISAP To report to the Professionalism Committee on how Due Process has been followed before a proposed final ISAP is submitted to the EC and Council To provide periodic review of ISAPs and determine whether they are in need of alteration, expansion or elimination and make proposals accordingly To liaise with other IAA bodies and external stakeholders as appropriate To maintain a workplan on the development of ISAPs To make recommendations to the Professionalism Committee on changes to the Due Process as appropriate. - It could be argued that these criteria relate to efficiency rather than effectiveness. But, in the end, isn t completing the tasks you have been assigned a success? We believe it can easily be demonstrated that we have fulfilled all the roles that have been specified above. If someone asks the IAA if the ASC has been successful, would it not be fair to say yes, we have appropriately addressed all our roles. - In this context, maintaining an annual record of our compliance with these assigned roles (much the way we do today) would serve as one component of our measures of success. 6

7 Appendix C Vision Statement for International Standards of Actuarial Practice and for Due Process (Approved 10 September 2012) International Standards of Actuarial Practice (ISAPs) 1. ISAPs will be widely accepted as a basis for convergence by local standard-setters and recognised by the parties who rely on actuarial standards such as audit firms, IASB, IAIS, IOSCO and the local regulators. 2. ISAPs will be clear, logically structured, and unambiguous - in terms of applicability, scope, and requirements. They will be well-suited for understanding by non-actuaries, and for translation into languages other than English. 3. ISAPs will be widely seen as contributing to the public good, by supporting the community's confidence in professional work produced by actuaries. 4. The quality and usefulness of ISAPs will motivate Full Member Associations (FMAs) to ensure that their members are fully aware of ISAPs that are under development or have been adopted. 5. Each ISAP will be drafted so as to apply to clearly defined areas of actuarial work, and it will be clear in what circumstances it applies. Due Process 6. The due process for ISAPs will have good governance and a high level of transparency. 7. Users and end-users of actuarial services will have confidence that the due process ensures the quality and suitability of ISAPs, and will understand and value the processes by which their views can be made known and will be responded to. 8. FMAs, standard-setters and other interested parties will recognise the value of ISAPs, and will be fully engaged where appropriate in the development process. 9. Actuaries will have confidence that ISAPs have been prepared by competent people who understand actuarial work and the commercial and professional framework in which they will be applied. 10. The ISAP due process will proactively identify the need for new ISAPs (or revision of existing ISAPs) and respond rapidly when the development (or revision) is approved. 11. The ISAP due process will properly balance the benefits of standards with the likely cost impact on users of actuarial services. 7

8 Task Force Analysis of: Vision Statement for International Standards of Actuarial Practice and for Due Process International Standards of Actuarial Practice (ISAPs) 1. ISAPs will be widely accepted as a basis for convergence by local standard-setters and recognised by the parties who rely on actuarial standards such as audit firms, IASB, IAIS, IOSCO and the local regulators. Issue: ISAPs as a basis of convergence - We must recognize that some standard-setting bodies have years of history and have already developed a robust set of standards. A decision by those entities not to adopt ISAPs is not an incrimination of the IAA or its model standards and should not be interpreted as failure, especially if the existing standards already cover the content of those ISAPs. - Is it possible that the vision that ISAPs will be widely accepted as a basis for convergence is an unrealistic goal? - In my view this can be responded to: 1) Even without a survey, the acceptance by Council is a measure of acceptance. The mere fact that a MA voted for it, is an indication that it supports it. 2) Using a survey, it could further be tested by asking the MAs the following questions: a) Do you believe that this ISAP furthers the convergence of actuarial standards across the world? b) Do you have a standard that is broadly similar to this ISAP? c) If the answer to (b) is no, do you intend either adopting this ISAP or a standard that is broadly consistent with this ISAP? d) If your main language is not English, are you considering translating this ISAP with a view to adopting it? - For me, the question of wide acceptance of our model standards is a question of whether jurisdictions in the end have in place local standards which are either based on and/or are broadly consistent with our ISAPs. We should not be so concerned about whether ISAP XXX has been transposed in a certain jurisdiction as there is also the possibility to not implement an ISAP because its content is already covered by local standards. - I think that it does not diminish our success if, in a certain jurisdiction, comparable standards have already been in place before our respective ISAP was adopted. 8

9 - Our goal should be to incentivize those jurisdictions that do not yet have in place a standard in the area of an ISAP to seriously consider to do so or those who already have a standard in place to seriously check on whether their local standards could be further improved by following the respective ISAP. - In my view the Council adoption is a measure of success, especially if there are only an insignificant number of No votes. - Possible questions to the MAs and standard setters could be: a. Did you/your jurisdiction check whether it should/could adopt ISAP XXX? b. Have you adopted ISAP XXX in your jurisdiction or a standard covering the content of ISAP XXX in your jurisdiction? c. If no, what are the reasons for that? a local standard covering the content of ISAP XXX is already in place ISAP XXX is not considered relevant for our jurisdiction we do not agree with the content of ISAP XXX we consider to adopt ISAP XXX at a later stage other (please explain) Issue: Recognized by the parties who rely on actuarial standards - Is it possible that the vision recognised by the parties who rely on actuarial standards such as audit firms, IASB, IAIS, IOSCO and the local regulators is an unrealistic goal? - The issue whether ISAPs are recognized by the parties who rely on actuarial standards such as audit firms, IASB, IAIS, IOSCO and the local regulators could only be measured by a questionnaire to all those stakeholders which I consider not realistic. - To other bodies: a. Do you believe that this ISAP furthers the convergence of actuarial standards across the world? and b. Do you believe that this ISAP increases your confidence in the quality of actuarial services provided? - As for other stake holders, we could ask a more general question like: Do you think that the ISAP s are well written and cover the necessary areas of actuarial work? 9

10 2. ISAPs will be clear, logically structured, and unambiguous - in terms of applicability, scope, and requirements. They will be well-suited for understanding by non-actuaries, and for translation into languages other than English. - Perhaps the most obvious measure for this objective could be the number of positive votes at Council for each ISAP (Target = 80%). It could be argued that even those MAs who don t literally adopt the ISAP but vote positively are essentially endorsing its quality. - The mere acceptance by council is an indication that they think it is clear, etc. - The questions to this one could be very similar to those of #1. To MAs: a) Do you believe that this ISAP is clear, logically structured and unambiguous? b) Do you have concerns with respect to scope and requirements of the ISAP? c) Do you believe there would be any hindrances with respect to scope and requirements when translating the ISAP to your local language? To Others: a) Do you believe that this ISAP is clear, logically structured and unambiguous? - I may suggest the following additional questions for consideration: Did you face any problems in adopting ISAP XXX because of lack of clarity or unambiguity? If yes, please specify. Did you face any difficulties in interpreting the standard which made it difficult or impossible to adopt it? If yes, please specify. 3. ISAPs will be widely seen as contributing to the public good, by supporting the community's confidence in professional work produced by actuaries. - Recording Exposure Draft and Final Draft comments from other interested parties could serve as a measure of support by those outside the actuarial profession. - Relying only on responses could be misleading since we do not know what those think who have not responded. It might also be the case that an ISAP covers a very specific area where we potentially receive less comments from other interested parties which I would not consider a lack of success. - Possible survey question to both MAs and others: Do you believe that local standards, consistent with this ISAP, will support the community s confidence in work produced by actuaries? 10

11 4. The quality and usefulness of ISAPs will motivate Full Member Associations (FMAs) to ensure that their members are fully aware of ISAPs that are under development or have been adopted. - Perhaps we should create an initiative to better communicate IAA/ASC/ISAP activities to all FMAs. The recent Dashboard is an example of what we want them to drink. Now how do we get them to the water. If we recognize this as one of our goals, we would need to measure FMA communications regarding ISAPs with their members. - I can see absolutely no reason why local members should be fully aware of ISAPs, since they are only model standards, and there is no reason to comply with it. I would not ask a question about this issue. It is of course important that the leadership of the local MAs be fully aware of the ISAP, so that they can consider adopting it. - Possible survey questions to MAs could be: What is the procedure of your MA to communicate to members on ISAPs issued by the IAA? Is there a standard procedure in place to raise awareness of ISAPs? How do MAs communicate with members on new ISAPs and the local consideration on adoption/non-adoption? Are ISAPs on the agenda of MAs meetings and are they discussed? 5. Each ISAP will be drafted so as to apply to clearly defined areas of actuarial work, and it will be clear in what circumstances it applies. - Since these are precisely the purposes of issuing Statement of Intents (SOIs), recording the final Council votes on each SOI should measure the accomplishment of this goal. - I agree with the comment above. So, any question in a questionnaire will simply confirm that. It will be extremely unusual for a MA to answer in the negative after having adopted it in Council. But theoretically it is possible that the Council member has a different view from his colleagues. Having said that, the ISAP being a model would never apply? - Question is simply a) Do you believe that the scope of the ISAP is clear? And b) If the ISAP is adopted as is by a local MA, would it be clear in what circumstances it would apply? - I think that the content of the ISAP is much more important than the format. I would rephrase the b) question to read: If the content of ISAP xxx is adopted by a local MA, would it be clear in what circumstances it would apply? 11

12 - I would like to add two more questions: c) Based on the feedback the MA has received from its members, do you consider the scope and circumstances of application of ISAP XXX being clear? d) Has clarity on the scope and the circumstances of application been a driving factor when deciding on the way you adopted an ISAP locally? Due Process 6. The due process for ISAPs will have good governance and a high level of transparency. - This appears to be a challenge for the Professionalism Committee to maintain appropriate Due Process policies and to see that the ASC complies with them. - I agree that the due process itself is the responsibility of PC. But it is our responsibility to follow due process, and that ought to be tested. But I do not believe that a question regarding this ought to be included in a questionnaire it is a tick-box affair. - I believe we should be asking whether the due process is considered adequate by MAs (e.g. very transparent, too slow, etc.). A possible question for MAs could be: o Do you consider the transparency of the process for getting in place ISAP XXX adequate and did you feel sufficiently involved in this process? 7. Users and end-users of actuarial services will have confidence that the due process ensures the quality and suitability of ISAPs, and will understand and value the processes by which their views can be made known and will be responded to. - This appears to be very similar to #6 above in that it places the responsibility on the IAA/ Professionalism Committee to maintain an effective/credible Due Process. - I do not believe that anyone thinks of due process when they consider the quality and suitability. What is important is the end goal, and not how you get there. - In my view, it is beyond our capabilities to assess this in a reasonable way. 8. FMAs, standard-setters and other interested parties will recognise the value of ISAPs, and will be fully engaged where appropriate in the development process. - An objective measure of success in accomplishing the engagement goal would be to continue to record the number of comments received from these audiences on each ASC draft. 12

13 - This is a double objective. The first part is very similar to #3, although a question may be phrased slightly differently: Do you intend adopting a standard relating this area of work, and if so, would this ISAP be valuable in drafting that local standard? - The second part can be measured simply by looking at the number of comments received. - On the second part, I believe there are other relevant factors that could be considered, at least as proxy measures for success, e.g. the interest of MAs in joining the ASC, the attendance of ASC seminars and webinars etc. 9. Actuaries will have confidence that ISAPs have been prepared by competent people who understand actuarial work and the commercial and professional framework in which they will be applied. - It would be very difficult (impossible?) to measure the confidence individual actuaries have in the people involved with developing ISAPs. However, we could maintain a database of the qualifications and experience of ASC and Task Force members. - Who cares how competent we are? As long as the output is of high quality. I would not test this one. - We might consider formalizing the regular review of competencies and professional areas covered by ASC members. - I agree this is a motherhood statement that would be used in court when something goes wrong!!! Were you an expert in that field when you created that ISAP??? It does not deserve a question. 10. The ISAP due process will proactively identify the need for new ISAPs (or revision of existing ISAPs) and respond rapidly when the development (or revision) is approved. - To date we believe that it can be shown that all eight (including 1A) ISAPs that have either been approved or are under consideration have been proposed by the ASC to Council through Due Process. This would also apply to the proposed merger of 1 and 1A. - Our continually updated Timeline is clear evidence of our response subsequent to approval by Council. Unfortunately, as a result of the detailed Due Process, rapidly is in the eye of the beholder. 13

14 - I agree with the comment, but the question is to me more about breadth of ISAPs than speed. - Question to both MAs and others: a) Do you believe that the speed with which this ISAP was developed and adopted was appropriate? b) Do you believe that there are any areas of work that ISAPs are needed that had not yet been developed? - I am not aware that we have an overall approach on the areas that could or should be covered by ISAPs. Success for me would mean that we have such a process in place that regularly monitors the possible need for new ISAPs. This would also include several suggestions where we come to the conclusion that a new ISAP is not needed. 11. The ISAP due process will properly balance the benefits of standards with the likely cost impact on users of actuarial services. - This seems like an impossible task, involving putting monetary values on the benefits of standards and cost impact on users of actuarial services provided around the world. - This is clearly a question about the quality of due process that belongs to PC, and not about how it is followed. - I agree that this is extremely difficult to assess. I even doubt whether it is the due process that should take care of the cost-benefit considerations. 14

15 Appendix D Statement of Objectives for International Standards of Actuarial Practice (ISAPs) (Approved by Council on May 26, 2012) International Standards of Actuarial Practice are established to promote high quality actuarial practice globally. High quality actuarial practice: Helps serve the public interest by benefiting users of actuarial work, regulators, and participants and beneficiaries of financial products and services, including social security programs; and Benefits actuarial associations and individual actuaries by enhancing the credibility of the actuarial profession. Characteristics of high quality actuarial practice include: Professionalism providing work that is rigorous, objective, soundly-based, and reflective of current thinking and practices; Consistency providing users of the actuarial work product with confidence that practice is consistent across clients subject to similar requirements; Usefulness adding substantial value to financial and risk analysis; and Clarity clearly articulated and understandable. Comment: This document asserts that ISAPs are produced to promote high quality actuarial practice globally and goes on to point out: - two benefits of high quality actuarial work, and - four characteristics of high quality actuarial work Measuring our success in accomplishing this objective appears to be beyond our capabilities, i.e., how can we 1) measure the quality of actuarial practice globally, and 2) determine what role ISAPs played in the creation of that quality? We conclude that it is unrealistic to expect the ASC to: - evaluate and measure the quality of global actuarial practice, and - determine the extent to which ISAPs have influenced that quality. 15

16 Appendix E Current Measures of Success (Latest Update 27/10/2016) Possible metrics for success of ISAPs Narrative A) Process 1. Nature of comment responses received on SOIs and EDs; proportions that are: a) Generally favourable b) Neutral c) Unfavourable 2. Timeliness: a) Target date in Strategic Plan b) First revised target date c) Second revised target date d) Date adopted 3. Council votes at approval (only number of voting rights) a) In favour b) Abstained c) Opposed 4. Evaluation by oversight entities: a) Professionalism Committee b) Executive Committee 5. Time taken at each development stage a) SAP to SOI b) SOI to ED c) ED to Final Review Process d) Final Review Process to final ISAP e) Total (from approval of SOI to approval of ISAP) 6. Definition of dates a) SOI start Formation of TF b) SOI end Council vote c) ED start SOI end d) ED end Publication by ASC e) Final Review Process Publication by ASC f) Final ISAP Council Vote 16

17 Appendix E Current Measures of Success (Latest Update 27/10/2016) B) Use 1. List of member associations (and their standard setters) showing their responses: (in absolute terms and relative to universe at [date] of [xx] associations): High Acceptance of ISAP 1 - Adopted as written - Adopted substantially consistent variation - Already consistent - Have modified or becoming consistent - Other (supportive) C) Outside recognition Not inclined to adopt/adapt ISAP 1 - Have standards - no comment - Will not take action - Not decided - Still Deciding - - No action at all - - Not responded to the specific questions 1. Record of interaction and successful engagement with non-actuarial entities (standard-setters, regulators, policy-makers, other professional bodies; in particular, IASB and IAIS) commenting formally or informally on SOIs and EDs 2. Record of non-actuarial bodies (standard-setters, regulators, policy-makers, other professional bodies, courts) citing ISAPs 17